Performance Management at Lincoln Electric Company and Southwest - Case Study Example

Performance management at Lincoln Electric Company and Southwest 22 September Table of Contents Table of Contents Introduction 3 Recruiting and Selection 4 Performance Management 4 Management Styles 4 Remuneration, Benefits, and Incentive Systems 5 Participation Level and Nature 7 Organizational structure. 7 Nature and level of participation . 7 Unionism. 8 Communication policies. 9 Performance Management Structure 9 Training and Development 10 Conclusion 11 References 12 Introduction Two of the most successful companies in their fields are Lincoln Electric and Southwest Airlines. A common denominator that has been linked to their success is their concern for employees that trumps their concern for their shareholders (Schuler, 2012, p.572). These companies assert that if employees are well taken care of, they will do their jobs better, and doing so benefits customers and shareholders. Lincoln Electric is the top company that designs, develops, and makes arc-welding products, robotic arc-welding equipments, and plasma and oxyfuel cutting tools. It also leads in the brazing and soldering alloys industries. Lincoln owns 40% of the U.S. market share. Moreover, it provides its employees with a well-known Lincoln Incentive Management Plan, which results to above-industry-average productivity (Schuler, 2012, p.559). In 1995, the company attained $1 billion revenues, while at present, sales reached $2 billion (Schuler, 2012, p.559). Employee morale and productivity are good; while turnover is almost zero (Schuler, 2012, p.559). A similar company with strong employee focus is Southwest Airlines. It has led the low-cost airline industry by focusing on being the cheapest and most efficient operator in domestic regional markets (Jackson, Schuler, & Werner, 2012, p.578). Despite being a low-cost airliner, Southwest is known for on-time travels, excellent customer service, and safety (Jackson et al., 2012, p.578). In 2012, the company bought AirTran Airways for $1.4 billion. The acquisition is believed to increase revenue and capacity by almost 25%, although its direct impact on Southwest’s success remains to be seen (Schuler, 2012, p.580). Like Lincoln Electric, employee morale and productivity are high in Southwest through the joint efforts of its employee-based committees. This paper compares, contrasts, and evaluates the human resource management practices of Lincoln Electric and Southwest. Recruiting and Selection Recruitment and selection are attuned to the organizational needs and cultures of Southwest and Lincoln Electric. Recruitment is restricted to internal recruitment for most jobs in Lincoln Electric. Only entry-level positions are open to external recruitment (Schuler, 2012, p.561). Selection is performed by HR, which also happens in Southwest. In Southwest, however, selection is more refined due to specific employee attitudes that it looks for. This can be explained by the fact that Southwest operates in a service industry, while Lincoln Electric works in the manufacturing industry. Southwest has a stringent selection policy, where it spends more time, energy, and money in recruiting people who can fit the fun and collaborative culture of the company (Jackson et al., 2012, p.584). It has a People Department that performs the decisive function of recruiting and selecting personnel (Jackson et al., 2012, p.584). Personality tests and interviews support the rigorous selection process (Jackson et al., 2012, p.584). Hence, though both companies ensure that their employees fit company goals and culture through their recruitment and selection practices, Southwest shows extra dedication and uses more resources in recruiting people with the right attitudes. Performance Management Management Styles Both Lincoln Electric and Southwest have charismatic founders, whom employees find be empathic of their employees’ welfare, although Southwest has a “wackier” attitude to managing employees. In an employee interview, Trahan remarked that James Lincoln “always cared for people” and regularly attended Advisory Committee meetings (Schuler, 2012, p.568). Southwest uses similar caring management styles. Southwest co-founder Herb Kelleher formed a unique organizational culture that focused on employee ownership and employee satisfaction to attain high-quality performance (Jackson et al., 2012, p.574). He is known for his thriftiness and wackiness, which helped engender trust among employees (Jackson et al., 2012, p.582). Like Lincoln, Kelleher listens to his employees and personally knows many of them (Jackson et al., 2012, p.582). These company executives believe in the centrality of their employees to company effectiveness and success, and they take extra measures to establish and strengthen employee morale and satisfaction. Lincoln Electric is more authoritarian in terms of managing people than Southwest. George Willis stressed that formal authority is part of the success of the company (Schuler, 2012, p.571). James Lincoln believed that the management must have “complete power” to successfully manage the company (Schuler, 2012, p.571). He compares managers to coaches and employees to players, where employees cannot directly affect or be involved in management decisions (Schuler, 2012, p.571). In Southwest, the management has a more casual and participative relationship with employees (Jackson et al., 2012, p.582). Southwest is focused on maintaining a strong organizational culture that is in charge of preserving and enhancing the culture of a fun and collaborative working environment (Jackson et al., 2012, p.582). To attain this, the management works closely with employees and allows them to affect important management decisions (Jackson et al., 2012, p.588). Remuneration, Benefits, and Incentive Systems Southwest and Lincoln Electric boast of incentive systems that enhance the take-home pay and morale of their employees. Lincoln Electric offers an incentive system that many employees believe to be sufficient in improving productivity and morale in the company. In an interview with a Lincoln Electric supervisor Joe Trahan, he stressed that through their incentive system, employees are motivated to improve their products to get higher bonuses (Schuler, 2012, p.568). The incentive system is based on the principle that people who work hardest earns the most and for this employee, this is not a problem at all, but a means for improving employee engagement through financial compensation. Southwest offer comparable incentives that are based on performance and service provided to co-workers and customers. The main difference between the two is that Southwest offers psychological incentives through different awards, such as Heroes of the Heart, President’s Award, and Winning Spirit Award, while Lincoln Electric emphasizes on financial rewards (Jackson et al., 2012, p.587). Some of the most important hallmarks of these companies are their healthcare plan and other benefits for their employees, although Southwest offers more to its employees than Lincoln Electric. Lincoln Electric provides a medical plan and retirement plan for employees (Schuler, 2012, p.571). The plant cafeteria provides for at 60% of costs (Schuler, 2012, p.571). In addition, Lincoln Electric has an employee stock ownership program, which resulted to 50% of the stocks being owned by the employees (Schuler, 2012, p.571). Southwest gives stock and profit sharing plans to employees too (Jackson et al., 2012, p.586). Because of this plan, it can keep basic wages at par or a bit lower, but because of higher performance, employees get extra incentive from their stocks. In addition, Southwest provides many health plans including dental insurance, medical insurance, life insurance, and disability insurance (Jackson et al., 2012, p.587). Numerous of these benefits are provided at no cost to employees (Jackson et al., 2012, p.587). Moreover, being part of the Southwest family is considered as a benefit in itself. Without layoffs since its inception, Southwest offers job security that many companies cannot guarantee nowadays (Jackson et al., 2012, p.586). The level of reward is different for these companies because Southwest invests in psychological rewards, while Lincoln Electric is known for its high monetary reward systems. Because of its incentive and stock systems, its employees are paid higher in similar jobs (Schuler, 2012, p.568). All employees who were interviewed highlighted that money or financial compensation as the best advantage of Lincoln Electric over other companies. Because of its piecework system and other individual performance measures, they earn more than other similar employees in other companies. In Southwest, it pays at or below the market in base pay, but because of variable pay, it pays higher than other airliners (Jackson et al., 2012, p.587). Its pilots and crew members, for instance, are the highest paid in the industry, which is exemplary for a low-cost airliner. Hence, these companies pay their employees well too. Participation Level and Nature Organizational structure. Both companies do not have rigid organizational structures. Lincoln Electric does not have a formal organizational structure because it believes in the importance of flexibility to competitiveness (Schuler, 2012, p.560). Southwest and Lincoln Electric have management hierarchies but they dispense with formal management policies and relationships (Jackson et al., 2012, p.587). The management of both companies works closely with employees in reviewing individual, department, and company performances, so that improvements can be made across all levels and departments too. Nature and level of participation . The nature and level of participation is different in these two companies. Lincoln Electric ensures participation through job enrichment and engaging employees to focus on constantly improving their performances (Schuler, 2012, p.571). Former assistant to the CEO Richard Sabo that employee participation is about expanding their roles and responsibilities (Schuler, 2012, p.571). This way, they develop skills flexibility that is not present with other companies. Southwest provides job enriching trainings too. It trains people to become knowledgeable of other jobs and to have a greater set of skills. Contrary to Lincoln Electric, it offers more power for employees to directly shape management decisions. Front-line employees, for instance, impact selection strategies and measures because they know the kinds of workers who can fit the jobs and culture of Southwest (Schuler, 2012, p.568). Hence, Southwest has a higher and more engaged level and nature of participation than Lincoln Electric. Unionism. These two companies have different unionism levels, but they both possess employee boards or committees in place that work closely with the management in administering performance and workplace issues. Since 1914, Lincoln Electric has an Advisory Board that is composed of its workers. The Board meets with the chairman and president every two weeks to talk about ways of improving performance (Schuler, 2012, p.571). In a Lincoln Electric employee interview, Trahan believed that they no longer needed a union, especially because it restricted the work that people can do (Schuler, 2012, p.568). He stressed that in Lincoln Electric, everyone “pitches in” to attain high performance levels (Schuler, 2012, p.568). These committees listen to the needs and concerns of the employees. In Lincoln Electric, a merit rating system rewards suggestions, which impacts monetary pay (Schuler, 2012, p.568). Southwest Airlines, on the other hand, has high employee unionism. It has several unions for different employee positions: International Association of Machinists and Aerospace Workers for customer service and reservation employees, Transportation Workers of America (TWU) for flight attendants, dispatchers, and ramp workers, Southwest Airline Pilots’ Association for pilots, and International Brotherhood of Teamsters for stock clerks and flight simulation workers, among others (Jackson et al., 2012, p.579). Despite the existence of different unions, Southwest Airlines does not have a record for strikes, pay cuts, and layoffs (Jackson et al., 2012, p.574). Its management, particularly due to the precedent of Kelleher, has shown remarkable approaches to building a strong relationship with all its unions. Unions have learned to see the management as their partners of success, and not their rivals for power. Communication policies. Both companies have genuine open-door policies. Lincoln Electric encourages people to talk about their issues directly with key managers or personnel who can resolve them (Schuler, 2012, p.560). It also supports the Employee Association that provides other support to employees. For instance, it gives disability insurance and offers social and sports activities for members (Schuler, 2012, p.571). Southwest has a People Department that takes care of all employee concerns. Similar to Lincoln Electric, it takes care of its people through promoting open and honest communication practices. Performance Management Structure Performance management is more decentralized and organized in Southwest than Lincoln Electric. Lincoln Electric manages performance through its supervisors and managers in a centralized manner, although they hardly directly manage their people, since the latter already know how to do their jobs and improve performance. Lincoln employees are motivated to enhance their performance, because it directly reflects in their monetary compensation. Individualism is more present in Lincoln due to the piecework incentive system, while in Southwest, the emphasis is teamwork and not individual work or competition (Jackson et al., 2012, p.587). Southwest uses cross-functional performance management variables to ensure that people work together and not against each other (Jackson et al., 2012, p.587). Performance management in Lincoln Electric fosters accountability, but for Southwest, it is aimed to promote cooperation, development, and learning through using group measures, instead of individual measurement factors (Jackson et al., 2012, p.587). Training and Development Training for job enrichment and cooperation are significant characteristics for both companies, although training is more sophisticated at Southwest. Lincoln Electric workers are trained for a short time and then put in a piece-rate work system (Schuler, 2012, p.571). It does not fund off-site trainings without specific needs that can be met more outside the company (Schuler, 2012, p.571). Sales workers are provided with on-the-job training in the plant, and then actual work and training at the regional sales offices (Schuler, 2012, p.571). At Southwest, training is more extended and diversified. Like Lincoln Electric, Southwest employees are prepared to handle different jobs. More so, they are trained to have the initiative to help each other and their customers, so that they can offer high-quality customer service and on-time travel experiences (Jackson et al., 2012, p.582). Unlike Lincoln, Southwest uses its University for People to train employees (Jackson et al., 2012, p.585). This University offers entry and career progression courses, including leadership programs (Jackson et al., 2012, p.585). It presents specialization courses to employees because it encourages constant knowledge and skills development (Jackson et al., 2012, p.585). Furthermore, employees are educated about the work of others they interact with (Jackson et al., 2012, p.585). This component enables employees to understand how their jobs fit with one another and promotes teamwork (Jackson et al., 2012, p.585). Training is constantly developed in Southwest in a systematic manner. Training directors meet once a month to improve the company’s training programs (Jackson et al., 2012, p.585). Employees freely send input to enhance training content, so that it will be frequently revised and made relevant to changing workplace conditions. Southwest and Lincoln Electric have different emphasis in terms of developing workplace morale and engagement. The management at Lincoln Electric is dedicated to the technical development of their employees (Schuler, 2012, p.573). Managers encourage continuous development and technical publishing that ensure the company’s edge in innovation and productivity (Schuler, 2012, p.573). In addition, they are concerned of how the employees feel about their incentives and other financial aspects of their job. Development takes precedence in Southwest through its dedication to a strong organizational culture. It has a Culture Committee that is devoted to the continuous morale engagement of its employees (Jackson et al., 2012, p.582). Moreover, it stresses fun and humor at the workplace (Jackson et al., 2012, p.582). Employees and managers have fun as a team, where they spend fun activities inside and outside the workplace. These attributes aim to ensure that a sense of community prevails in Southwest, in order to reduce the mechanistic nature of work in airline services (Jackson et al., 2012, p.582). Conclusion The relationship between human resource management (HRM) strategies and practices and organizational success has been a significant field of study for HR and management scholars. Some studies provide compelling evidence that HR strategy can affect firm performance (Huselid 1995, p.635; Wall and Wood 2005, p.430). These studies indicate that one of the main responsibilities of HRM is to make certain that it effectively manages people, so that they can be a source of competitive advantage (Guest et al. 2003, p.291). Southwest Airlines and Lincoln Electric share similarities in their performance-based rewards system because of their high regard for their employees. They are examples of how HR policies directly impact employee morale and organizational success. Their employees get the highest remuneration through competitive incentive and stock plans, although Southwest provides more benefits. The primary difference in their recruitment, selection, and training and development practices is that Southwest Airlines has a more systematic and participatory approach than Lincoln Electric. Their performance management ideologies are different because Southwest focuses on teamwork, while Lincoln Electric provides high rewards for individual performance. It must be noted that these companies operate in different industries, which explain why each approach work effectively for them. To each his/her own, as long as their approaches are effectively meeting the needs of the organizations and employees. And based on their performance and employee satisfaction levels, it seems that they are. References Guest, D.E., Michie, J., Conway, N., & Sheehan, M. (2003). Human resource management and corporate performance in the UK. British Journal of International Relations, 41 (2), 291-314. Huselid, M.A. (1995). The impact of human resource management practices on turnover, productivity, and corporate financial performance. Academy of Management Journal, 38 (3), 635-672. Jackson, S.E., Schuler, R.S., & Werner, S. (2012). Integrative case: Southwest Airlines. Schuler, R.S. (2012). Integrative case: The Lincoln Electric Company. Wall, T.D., &Wood, S.J. (2005). The romance of human resource management and business performance, and the case for big science. Human Relations, 58 (4), 429–462. Read More